Programs Aid First-Time and ‘Target-Area’ Home Buyers
How do I stop renting and start owning?
Many readers ask me that question. Here are a few alternatives worth exploring.
State of California programs:
* The California Housing Finance Agency (CHFA) in Sacramento uses mortgage revenue bonds to buy loans from lenders statewide and to provide a variety of options for home buyers.
* The California Housing Loan Insurance Fund offers 97% of purchase price loans to low- and moderate-income buyers, originated by certain approved private lenders. The maximum loan amount is $203,150. CHFA has both fixed- and adjustable-rate loans. For a list of CHFA-approved lenders and information, call (800) 789-CHFA.
* CHFA’s Generation Link program allows parents to help their kids buy a home. Parents or other blood relatives can pledge 10% of the purchase price of the child’s home as a second trust deed on their home. The parents are only responsible for the amount of the pledge and only in case of default by the borrower. Within seven years, the loan amortizes to a 95% loan and the pledge is removed. More information is available by calling North American Mortgage Co. in Woodland Hills at (800) 700-6262.
Lenders who are approved by CHFA are also able to offer 30-year loans with a fixed rate of 5.95% to buyers who have suffered earthquake damage, who are of moderate income or who are buying in a so-called “target area” that has been identified by the federal government as needing assistance. “First-time” home buyers who were renters during the January Northridge earthquake may qualify for a CHFA loan if they can document serious damage to their rented premises.
There are income limits to keep in mind. A family in Los Angeles County of one or two people can’t earn more than $55,700 and qualify for a CHFA loan; families of three or more can make up to $64,500 and still qualify. The income limits in Ventura County are higher. Certain income and purchase price limitations apply, based on the number of family members and location of the residence being purchased. To get a list of CHFA-approved lenders, call (800) 789-CHFA.
City of Los Angeles programs:
The Los Angeles Housing Department administers several home ownership programs for first-time home buyers who purchase detached homes, condos or townhomes within the city limits. A first-time buyer is someone who has not had an interest in a home in three years. This requirement does not apply, however, to people buying homes within a target area.
* Silent seconds--also known as secondary finance assistance mortgages--are offered through the Los Angeles Housing Department to qualified borrowers. These second mortgages can be used in lieu of a down payment. The silent seconds carry a low interest rate with payments of interest and principal generally deferred until the residence is resold. The city forgives the second mortgage over time, but the borrower must pay a portion of any profit earned on the sale of the home to the city.
Certain low-income borrowers may qualify for a silent second mortgage of up to $50,000. The income limits per household are $27,950 for one person, $31,900 for two, $35,900 for three and $39,900 for four. Information is available by calling (800) 994-4444.
* Home Mortgage Revenue Bond Program. Los Angeles is offering 7.82% interest, 30-year fixed-rate mortgages with about 3% to 5% down payments. These loans will be available starting in January through three different lenders for certain buyers. Buyers of a new home can earn up to $58,920 per household; buyers of a resale home can earn up to $49,100 per household. The loans are available to first-time buyers or any buyer who buy in a target area. For information, leave a detailed message with your name and address at (213) 847-7631.
* HomeWorks! provides assistance for a first-time home purchase or a first-time purchase with home fix-up. There are actually two programs--one with low down, easy qualifier loans and another with city grant money available. The loans are available for buyers in certain target areas who are low and moderate income. A family of four, for example, can earn up to $54,240. Low-income borrowers--a family of four with an annual income of up to $39,900--may also qualify for grants of up to 2% of the purchase price of the residence. For details, call (213) 847-7408.
* In the North Hollywood Redevelopment Project area, administered by Los Angeles’ Community Redevelopment Agency, grants of up to $7,500 are available to some first-time home buyers. The money is available to certain low-income people and can be used for a variety of exterior home improvements. Low-interest loans for residential rehabs within the project area are also available for low- and moderate-income households with interest rates ranging from 3% to 10%. For information, call (818) 753-1918.
Mortgage Credit Certificates:
* These certificates are offered through different cities and counties and help buyers qualify for a larger loan by allowing them to take 20% of their mortgage interest as a federal income tax credit as opposed to merely an income tax deduction. For example, if you pay $10,000 a year in mortgage interest, $2,000 of that would be subtracted from your federal income tax liability. This means more disposable income and the ability to qualify for a bigger home loan.
There are, of course, a lot of wrinkles to the MCC program. Buyers must get a loan from lenders approved by their city or county for the MCC program. Buyers in Los Angeles city, for example, qualify for MCCs only if they meet certain income requirements. A household with one or two people can’t earn more than $59,128 a year. The program is also generally limited to first-time buyers.
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But in a target area--including parts of Pacoima, Panorama City, North Hollywood and North Hills--MCCs are somewhat easier to get. In these cases, MCC applicants don’t have to be first-time buyers and a household of three or more people can earn up to $70,560 and still qualify, said Sally Richman, housing, planning and economic analyst with the Los Angeles Housing Department.
“The beauty of this is that it gets into the moderate-income range; you don’t need to be low income,” Richman said. “The MCCs give the family more disposable income and they can more easily qualify for a loan.” Information about the city’s MCCs is available by calling (213) 847-7690. Buyers in other jurisdictions must contact their local county or city to see if the program is available.
Tapping into your pension fund:
Borrowing against certain retirement or pension accounts is a way that some buyers can get a 100% mortgage without touching their accounts, said John Lucas, vice president and branch manager at ARCS Mortgage Inc. in Van Nuys.
The California Public Employees Retirement Fund (CALPERS), for example, allows would-be home buyers to borrow against their retirement savings in lieu of coming up with a down payment. “Tapping into a pension account is a great way for some buyers to go,” Lucas said. “The realtors are not always as aware of these programs as they need to be or as they could be,” he said.
But there’s one caveat about borrowing against a pension fund, warns Ben Hunnicutt, a realtor and CPA in Woodland Hills. If you borrow money from a pension fund that is a tax-deferred investment, you no longer get to deduct that interest from your taxes; indeed, the past interest you have earned is now taxable.
So be forewarned. In many of these loan programs, the application process isn’t easy. So be prepared to deal with bureaucracy and get your credit reports in order.
